Debunking 6 Myths Concerning the Tax Minimize and Jobs Act

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Debunking 6 Myths About the Tax Cut and Jobs Act

Congress passed a $ 1.5 trillion tax cut and reform package in December 2017 that was the subject of heated partisan attacks. Now, more than three years later, the Tax Cut and Employment Act has been the subject of a myriad of persistent misrepresentations urging Congress to repeal portions of the law.

To keep Congress down and make reforms to the Tax Cut and Employment Act permanent, it is critical to correct the record for lawmakers and the American people.

Reversing the 2017 tax cuts would not only increase Americans’ taxes, it would also make economic recovery from COVID-19 more difficult by increasing the cost of rebuilding a strong labor market.

Here are six of the most common myths featured in a recent Heritage Foundation report and why they’re wrong.

Myth # 1: The tax cuts benefited businesses, not working Americans, or the economy.

The main legacy of tax cuts is their benefits to working Americans. After the reform, which included substantial tax cuts for companies, the labor market improved significantly.

Wage growth rose more than a percentage point in the next two years, resulting in more than $ 1,400 annual wages, which was above trend for manufacturing and non-regulatory workers.

In 2018, the year after the tax cuts, new job openings continued to grow, and by the end of 2019, around 83,000 Americans voluntarily left their jobs for better opportunities, compared to the pre-reform trend.

Data from the Census Bureau also shows that real household income hit an all-time high in 2019, growing by $ 4,400 (a 6.8% increase of one year).

The Tax Cut and Employment Act was also the most significant reform of much of tax law in 30 years – since President Ronald Reagan’s tax reform in 1986. Then the Tax Cut and Employment Act made it easier for millions of Americans to pay their taxes, among other things family benefits and revised the international tax system.

Myth # 2: It was a tax bill for the rich only, so most Americans didn’t get a tax cut.

Many Americans believe they will not benefit from the tax cuts because it has been widely reported that the reform primarily benefited businesses and the rich. This narrative is wrong.

Each tax cut benefited more than 80% of Americans, and less than 5% of taxpayers were projected to see a tax increase in 2018. In the $ 1.5 trillion tax burden, more than three-quarters of the total tax cuts were made by individual taxpayers.

IRS data confirms Americans in every income bracket benefited from lower effective tax rates. The average effective tax rates decreased by 9.3% (around 1.4 percentage points) in 2018.

The tax cuts as a percentage of taxes paid in 2017 were largest for lowest-income Americans and smallest for highest-income Americans, meaning high-income Americans now pay a greater proportion of income taxes than they did before the tax cuts .

Myth # 3: The SALT cap increased taxes for the middle class.

The Tax Cut and Jobs Act also included a $ 10,000 cap on the deduction of state and local taxes (called SALT) available to taxpayers who wish to list their tax deductions instead of choosing the now larger standard deduction.

Democrats and some Republicans have condemned how the new ceiling harms middle class families. However, lower tax rates, a larger standard withholding and changes in the alternative minimum tax offset the changes and mean that few taxpayers saw net tax increases overall.

The upper limit was a necessary reform in order to improve the competitive conditions between high-tax and low-tax countries. Among the high-income Americans who benefit from this deduction, an average millionaire living in New York or California has deducted more than $ 450,000 in state and local taxes before the cap. By comparison, the average Texas millionaire deducted only $ 50,000, paying nearly $ 180,000 more per year in federal taxes just to live in Texas.

The lifting of the SALT cap would reintroduce a tax subsidy used almost exclusively by high-income taxpayers, benefiting politicians in high-tax countries at the expense of taxpayers across the country.

Myth # 4: The new corporate tax rate of 21% is too low.

The federal corporate tax rate was permanently reduced from 21% to 21% in 2018 through the law on tax cuts and employment.

A key election promise made by then-candidate Joe Biden and the Congressional Democrats in 2020 was to raise the corporate tax rate to 28%.

Even at 21%, American companies pay combined state and federal corporate tax rates, much like companies in our comparison countries.

Raising the corporate tax rate to 28% would reduce US competitiveness and restore America to a world leader in corporate penalty tax rates.

Myth # 5: The tax cut is paying off.

President Donald Trump and administrative officials have often claimed that tax reform would pay for itself. This claim was misleading and diverted from the real purpose of the reform.

The purpose of the tax cut is to allow Americans to keep more of their hard-earned money, rather than maximize revenue for the Treasury Department. If Congress can responsibly reduce spending, lower revenues should be the target of tax cuts.

The tax cuts have made the economy bigger, but not enough to make up for any lost revenue before the law expires.

Myth # 6: The tax cuts caused the federal budget deficit.

Democrats and many Republicans were right to fear that the law on tax cuts and employment would add unnecessary public debt. However, claims that the tax cuts are responsible for the federal government’s poor budgetary position are a misdiagnosis of trends that have been going on for decades.

The TCJA increased the budget deficit, but the law is not the cause of the unsustainable US budget. The systemic gap between income and expenditure is due to the continued growth of mandatory spending programs since the 1970s.

The repeal of the 2017 tax cuts would not change the course of the increase in the federal budget deficits. The tax cuts (even if they are permanent) account for only about 16% of the pre-pandemic budget deficit, and the projected deficit of one year in 2030 is higher than the total 10-year cost of the Law on Tax Cuts and Employment in the country that was passed Version.

The 2017 tax cuts represented major structural reforms to US tax law that must be permanent in the years to come. To ensure that Congress keeps taxes low and makes the reforms of 2017 permanent, it is crucial to set the record clear on the Tax Cut and Employment Act.

Reversing the tax cuts due to a mischaracterization of the real impact would greatly increase the economic recovery from COVID-19 as the costs for American businesses and families rise.

This piece originally appeared in The Daily Signal.